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The high cost of treating patients isn’t going away. Now what?
Medical cost trend is once again hovering at rates reminiscent of 15 years ago. The US healthcare system is heading into another year of powerful inflationary forces exerting pressure with few deflationary forces in sight. Commercial payers in 2026 will be asked to continue paying the ballooning bill for medical services and prescription drugs. Meanwhile, federal health policy and legislation likely will reduce federal spending on healthcare over the next 10 years, with an expected but unknown impact on medical cost trend in the future.
For the fourth year, health plan actuaries surveyed annually told us they anticipate medical cost trends for the Group and Individual markets to remain elevated. Based on their input, we’re projecting the medical cost trend in 2026 to remain at 8.5% for the Group market and 7.5% for the Individual market, the same levels as 2025. Pharmacy cost trend was 2.5 points higher than medical trend, reinforcing the urgency of managing pharma care. We’re also restating Group and Individual trends for 2024 and 2025, as all are higher than previously projected.
Rising costs are a driving force making healthcare transformation inevitable.
Leaders should read the 2026 medical cost trend as a signal of the future, pointing to deeper, structural changes in how healthcare is used and what it costs. We've outlined actions to take now under each cost inflator and deflator to help improve cost trend pressure in the short-term. Notably, health plans should put additional emphasis on cost of care programs to bring medical cost trend to a sustainable level.
Longer term, bold reinvention will mean the reallocation of healthcare spending to create a patient-centric ecosystem anchored by care that’s preventive, personalized and predictive with flexible sites of care built around the patient. In the future, payers will become health architects — personalizing coverage, steering care and managing increasing provider costs in real time while providers focus on health outcomes, leveraging AI to improve efficiency and creating connections across the ecosystem.
The pressure’s on
Claims costs continue to rise as hospitals and health systems shoulder heavier operating outlays and find innovative ways to collect additional revenue. Behavioral health spending is climbing dramatically. Spending on drugs is also increasing, in part due to the popularity of GLP-1s and launches of new drugs.
Countering the cost inflators are two deflators that could have modest effects next year. Biosimilars continue to nibble at the margins of the spending on biologics. Commercial plans are experiencing some success in managing the total cost of care.
Health plans, health systems brace for shrinking of federal spending on healthcare
Medical cost trend pressures are playing out against a backdrop of significant changes in federal health policy and regulation that could lead to declines in federal spending on Medicaid and subsidies for people choosing Affordable Care Act marketplace plans. The Congressional Budget Office (CBO) projected millions more people will be uninsured by 2034 due to passage of H.R. 1, also known as the “One Big, Beautiful Bill” (OBBB). While the impact of many of these decisions wouldn’t be felt until after 2026, stakeholders from hospitals to drug companies may take action sooner to brace for a dramatic shrinking of federal spending on healthcare.
Act now and use your pressure relief valves
The use of AI, novel health plans offering consumers greater choice and affordability, and greater transparency could become important deflators in coming years. In the meantime, to stay ahead of escalating medical costs, payers should prepare for continued challenging provider contracting discussions and identify opportunities to level up their payment integrity and other care management capabilities. Rising inpatient admissions and care severity are boosting provider revenue — but health plans are absorbing the cost. Stronger controls and smarter use of data, including claims analysis, rate benchmarking and scenario modeling, are essential to inform provider negotiations and prevent budget overruns.
Drug spending is another pressure point — and it’s only intensifying. Health plan executives should rethink their pharmacy benefit strategy. That means auditing existing pharmacy partners and exploring transparent, innovative models from Pharmacy Benefit Managers (PBMs.) Tighter oversight of GLP-1s — enhanced prior authorization, value-based contracts, and integrated wraparound services like nutrition counseling and digital coaching — can help plans manage both cost and outcomes.
At the same time, biosimilars represent a powerful lever to offset drug costs. Health plans should assess their biosimilar strategy, remove barriers to adoption by streamlining approvals, establish fair reimbursement, and supporting provider switching. Transparent rebate negotiations with PBMs will be crucial to realizing these savings.
Cost containment can’t be just an initiative — it has to be an operating principle. Health plans should embed AI into care management, pre-payment audits and care coordination to boost efficiency and impact. It’s time to cut underperforming care programs and prioritize digital-first interventions that engage members without bloating overhead. Foundational investments in data infrastructure can help sharpen analytics and power more effective fraud, waste and abuse detection.
Healthcare inflators
Inflator: Hospital costs, from wages to hospital gowns
Inflation continues to batter many hospitals and health systems. Wages are rising more quickly for employees of hospitals and health systems than the national average. The same is true of hospital expenditures in general. In 2024, hospital year-end margins were, on average, 2.1%, compared with 7.0% in 2019. Margins declined even further in the first quarter of 2025. Many rural hospitals depend on government payers and have warned of waves of closures and an ongoing hollowing out of these institutions. OBBBA includes $50 billion over five years in aid for rural hospitals; states may use this money to boost these hospitals’ finances.
Inflator: Hospitals rev up revenue cycle management
Some hospitals and health systems have found ways to cope with rising costs — passing them along to commercial payers, for example. Those hospitals reporting double-digit operating margins have implemented strategies to maximize revenue by increasing utilization and optimizing their revenue cycle processes. Facing impending declines in federal dollars, these systems will have even more incentive to develop these tools and collect as much income as possible from commercial payers.
There’s been a notable uptick this past year in inpatient hospital admissions, and care severity, further driving revenue growth for many hospital systems. While providers benefit from this trend, health plans face additional medical costs to pay for higher patient claims.
Act now: Health plans need strong utilization management and payment integrity programs. Without them, they risk absorbing more of the impact of rising inpatient admissions and growing unit cost pressure from providers. Value-based contracts and alternative payment models can help shift some of those rising costs back to providers. To support negotiations and contracting, plans should use data-driven analytics — like claims analysis, rate benchmarking and impact modeling of rate changes.
Inflator: Surges in behavioral health
Utilization of inpatient and outpatient behavioral health services is soaring. Claims for inpatient services were up nearly 80% between January 2023 and December 2024. For outpatient services, claims were up nearly 40% over that same period. One out of three health plan actuaries we surveyed named behavioral health services as a top three inflator and said they expect a 10% to 20% trend for behavioral health next year.
Act now: Balance appropriate and holistic coverage for mental health-related conditions while incorporating new strategies to maintain cost trends. Collaborate with providers to develop strategies like condition-based alternative payment models, including capitation models. Health plans can also partner with employee assistance programs and other third-parties to offer customers comprehensive coverage while limiting their share of the cost.
Inflator: Drug spending is growing with a wave of new therapeutics hitting the market
Drug spending in the US grew by $50 billion (11.4%) from $437 billion to $487 billion in 2024 at net manufacturer prices, up from $20 billion of growth (4.9%) in 2023. The trend is expected to extend into the coming years, driven by growth in oncology, immunology, cardiovascular, obesity and diabetes drugs.
Among the many innovative treatments being developed and launched by pharmaceutical companies, GLP-1 drugs continue to be regarded by health plans as a top cost inflator. They’re projected to account for between 0.5% and 1.0% of the estimated medical cost trend for 2026. To manage costs and achieve better treatment outcomes, many health plans are tightening restrictions on clinical criteria and step therapies for GLP-1 weight management use. While these weight loss drugs have the potential to prevent expensive health issues down the road, adherence and sustained benefits through true behavioral modification is proving to be a challenge, as many consumers abandon the drugs within a year of initiating treatment.
Many health plans we interviewed also expressed concerns over the financial risk posed by coverage of cellular and gene therapies (CGTs.) Reinsurance carriers often exclude payment for conditions eligible for CGTs, such as sickle cell anemia disease or hemophilia.
Act now: Overall, health plans and employers should continue to evaluate strategies and partners to improve their pharmacy benefits, with innovative and transparent models available both from PBMs and the growing Pharmacy Benefit Administrator (PBA) segment. A wide range of technologies and AI-enabled solutions are emerging to improve efficiency, reduce waste and optimize costs. Across classes and within GLP1s, specifically, plans should continue to explore strategies like value-based contracting and enhanced prior authorization criteria. To sustain the health benefits of weight loss drugs, health plans should also consider tighter integration of GLP-1 coverage with wraparound services like nutritional counseling, behavioral coaching and digital weight management tools for patients. Agility is the watch word for health plans, with pipeline monitoring, scenario modeling and policy adaptability to anticipate utilization increases and budget impact.
To manage the financial risk of CGTs, health plans should explore innovative reimbursement models like outcomes-based rebates, milestone-based payments and carve-out partnerships.
Healthcare deflators
Deflator: Biosimilars for the win
Biosimilar adoption continues to play a key role in tempering rising drug costs. For the third year in a row, health plans cited biosimilars as the leading cost deflator. In 2024, the emergence of private-label strategies boosted Humira biosimilar uptake from 3% to 28%, driving savings for health plans. In 2025, a similar trend is emerging with Stelara, a $6 billion biologic, as seven FDA-approved biosimilars, including private-label versions, launched or prepare to launch in 2025 at more than 80% less than the reference product.
Act now: Health plans can play a critical role in supporting providers and accelerating biosimilar adoption through measures like streamlining prior authorization, reimbursing fairly for biosimilars and supporting switching infrastructure. Health plans should also proactively work with PBMs to fully understand rebate terms and push for more transparent rebate economics.
Deflator: Pick up the pace to control cost of care, seriously and relentlessly
Three out of four health plan actuaries interviewed named managing the total cost of care as a top deflator, a bump in the number citing this deflator last year. Payers are deploying utilization management, claims integrity reviews, pharmacy oversight and prescription management programs and weaving AI into their processes.
Act now: Health plans should match cost containment goals with operational excellence. Simplifying utilization management, using AI to automate and enhance pre-payment audits and tightly integrating pharmacy and care management are essential. Plans should phase out low-performing care management programs and prioritize digital-first interventions that can engage patients with minimal overhead. Invest in foundational data exchange platforms that support higher quality and cost analytics and sharpen scrutiny on fraud, waste and abuse.
Employers should be intentional about setting trend targets and pushing health plans and vendors for clarity and performance metrics for GLP-1 oversight, behavioral health integration and pharmacy cost drivers. Larger employer groups can push the envelope on benefit innovations like mental health out-of-network cost-sharing parity to improve health outcomes and employee satisfaction.
At a glance and trends to watch
About the survey
We surveyed and interviewed actuaries at 24 US health plans covering 125 million Group plan members and 12 million Individual plan members. As in previous years, we asked plan actuaries to share medical cost trend projections along with their top inflators and deflators. We also asked the executives about trends they are watching and other changes looming on the horizon.
What is medical cost trend?
Medical cost trend is defined as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same. This report estimates the projected increase in per capita costs of medical services and prescription medications that affect insurers’ Group and Individual plans. Insurance companies use the projection to calculate health plan premiums for the coming year. For example, a 5.0% trend means that a plan that costs $10,000 per member this year would cost $10,500 next year.
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